Cyrus Mistry says he was powerless as Tata chairman

There was no response from the Tata Group on the points raised by Mistry, who said he had been reduced to a “lame duck” chairman.Kala Vijayaraghavan&Baiju Kalesh | ET Bureau | October 27, 2016, 07:09 IST

MUMBAI: Cyrus Mistry said he was shackled as Tata Sons chairman, leaving him powerless to reverse blunders of the past and struggling to prevent Tata Group from sliding into an even deeper morass. Mistry said he was forced to keep the Nano project going, pushed into investing in two aviation businesses despite the group’s huge debt and even told to ignore fraud to the tune of Rs 22 crore.

Mistry detailed these issues in an email, parts of which ET reported on Wednesday, which was sent to Tata Sons and Tata Trusts on the previous night following his sacking on Monday.

There was no response from the Tata Group on the points raised by Mistry, who said he had been reduced to a “lame duck” chairman. Mistry also was unavailable for further comment.

The five-page letter listed the worst problems as he sees them and delivered a stinging rebuke largely targeted at predecessor and successor Ratan Tata, besides reminding the recipients that the information it contained wasn’t new to them.

“On the performance of the portfolio, as you are aware from my presentations to you in the recent past, if we look at the aggregate data between 2011 and 2015 and limit the analysis largely to the legacy hotspots (IHCL, Tata Motors, Tata Steel Europe, Tata Power Mundra and Teleservices), it will show that the capital employed in those companies has risen from Rs 1,32,000 crore to Rs 1,96,000 crore (due to operational losses, interest and capex),” Mistry said. “This figure is close to the net worth of the group which is at Rs 1,74,000 crore. A realistic assessment of the fair value (of) these business could potentially result in a writedown over time of about Rs 1,18,000 crore.”

The Nano, Ratan Tata’s dream project, had failed with losses peaking at Rs 1,000 crore and needed to be shut down if Tata Motors was to be revived, Mistry said. “Emotional reasons alone have kept us away from this crucial decision,” he said. “Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders (shells) to an entity that makes electric cars and in which Mr Tata has a stake.’’

He said Tata Motors Finance “extended credit with lax risk assessment”, leading to non-performing assets (NPAs) of `4,000 crore.

PUSHBACK ‘FUTILE’ Mistry said he tried to resist the aviation investments. “My pushback was hard but futile. However, I was able to extract a promise of no debt to be raised at the JV level (in Air Asia India) as well as limiting the Tata Sons investment to 30% of the $30 million equity,” he said. “A few months later, I was surprised to be confronted with a similar situation requiring me to execute a fait accompli venture with Singapore Airlines (in Vistara).”

He also cited ethical concerns that had been raised with respect to certain transactions involving Air Asia.

“A recent forensic investigation revealed fraudulent transactions of Rs 22 crore involving non-existent parties in India and Singapore,” Mistry wrote. “Executive trustee, Mr (R) Venkataraman, who is on the board of Air Asia and also a shareholder in the company, considered these transactions as non-material and did not encourage further study.

It was only at the insistence of the independent directors, one of whom immediately submitted his resignation, that the board decided to belatedly file a first information report.”

STATE OF TATA CAPITAL Mistry also referred to the parlous state of group company Tata Capital, highlighting debt to longtime Ratan Tata associate C Sivasankaran.

“Tata Capital had a book that required significant cleanup on account of bad loans to the infrastructure sector,” he said. “The loan to Siva was under the strong advice of executive trustee Venkataraman, which has since turned into a non-performing asset. All of this resulted in Tata Capital having to recognise an abnormal size of NPAs.”

He said his decision to slash dividends paid by companies such as Tata Motors and IHCL, angering investors, were aimed at conserving cash needed for investments.

“Despite all of the above, during my term, the operating cash flows of the group have grown at 31% compounded per annum,” Mistry said. The Tata Group’s valuation rose 14.9% per year in rupee terms between 2013 and 2016 against 10.4% in the Sensex, he added. Tata Sons’ net worth has increased to Rs 42,000 crore from Rs 26,000 crore, strengthening the balance sheet and improving its ability to absorb further shocks from restructuring, he said. His role as chairman had been undermined by amendments in the articles of association.

“This created alternative power centres without any accountability or formal responsibility, invalidating the very governance role of the Tata Sons board and the chairman, resulting in dysfunctional governance,” he said.

He also excoriated Tata Trustsnominated directors for acting as postmen, referring to an instance when Nitin Nohria and Vijay Singh kept the Tata Sons board waiting for an hour “in order to obtain instructions from Mr Tata”.

“Such a work pattern has also created the added risk of contravening insider trading regulations and exposed the Trusts, apart from exposing the trustees to potential tax liabilities,” he said.

“These circumstances forced me to circulate a note on corporate governance in order to clarify the distinct roles of Tata Trusts, Tata Sons board and the boards of the operating companies.”